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Plum Creek Q4 Earnings Fall on High Expenses

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Hurt by higher expenses tied to the December acquisition, Plum Creek Timber Company Inc. (PCL - Analyst Report) reported fourth-quarter 2013 earnings of 24 cents per share, well below the prior year quarter figure of 49 cents. The reported earnings also came below the company’s guidance range of 26–31 cents per share.

However, after excluding these expenses, Plum Creek’s adjusted earnings came in at 31 cents, which exceeded the Zacks Consensus Estimate of 28 cents.

In particular, the results at this timber real estate investment trust (REIT) were mainly dampened by expenses worth $12 million associated with the company’s buyout of timberland, real estate, and subsurface resources from MeadWestvaco Corporation in December. The company also experienced a decline in revenue.

For the fourth quarter total revenue fell 6.5% year over year to $331 million. However, this marginally exceeded the Zacks Consensus Estimate of $321 million.

For full-year 2013, Plum Creek reported earnings of $1.30 per share, up from $1.25 per share earned a year ago. This was flat with the lower end of the company’s guidance range of $1.30–$1.45. Moreover, total revenue inched up 0.1% from the prior year to $1,340 million.

Segment Performance in Q4

Northern Resources – This segment reported operating profit of $8 million during the quarter, up 60% year over year. A significant rise in sawlog price (around 20% year over year), offsetting the effect of lower harvest volumes was the tailwind. This uptick in sawlog price was aided by robust demand for both hardwood and softwood logs. However, pulpwood prices moved up marginally due to the tough pulpwood market. Overall, harvest volumes declined 4% year over year, in tune with management's strategy.

Southern Resources – This segment booked an operating profit of $34 million, up about 41.7% year over year. The rise came on the back of higher pricing for both sawlog (up 12% year over year) and pulpwood (up 10%). Increasing log demand was the driver for price escalations. Sawlog harvest grew 30% year over year and pulpwood harvest increased 3% on a year-over-year basis.

Real Estate – This segment generated operating profit of $31 million, down 58.1% year over year, owing to lower real estate activity in the quarter. The company sold around 20,100 acres of rural recreation lands, 6,125 acres of conservation lands and approximately 4,000 acres of lower productivity, non-strategic assets.

Manufacturing– This segment posted an operating profit of $8 million in the quarter, up 14.3% year over year. Results were driven by high lumber sales volumes. Notably, lumber sales volumes were 40% higher on a year-over-year basis driven by the re-opening of a stud lumber mill in early 2013.

Financing of the Southern Timberland Acquisition

Plum Creek concluded the $1.1 billion worth buyout of timberland, real estate, and related sub-surface resources from MeadWestvaco in Dec 2013. The purchase was financed through a combination of equity and debt fund. In particular, Plum Creek sold 13.9 million common shares and garnered net proceeds of $607 million. It increased the debt level by about $480 million.

Liquidity

Plum Creek ended 2013 with $433 million in cash and cash equivalents, up from $356 million at prior-year end. Total long-term debt stood at $2.4 billion, up from $1.8 billion in 2012.

Outlook

Management expects 2014 earnings per share to be in the range of $1.30–$1.50. For first-quarter 2014, earnings are projected to be in the range of 12–17 cents per share.

Also, Plum Creek expects total harvest volume to be in the range of 20–21 million tons in 2014. This reflected the addition of around 3 million tons to Plum Creek’s annual harvest volume in 2014, resulting from the Southern timberland acquisition.

Our Viewpoint

Although the accretive Southern Timberland buyout holds good for Plum Creek’s long-term growth, the associated near-term expenses dampened the fourth-quarter results. Also, lowered operations in the real estate segment added to the woes. Moreover, declining harvest volume in the Northern segment since the past few quarters might limit any robust top-line expansion going forward and thus remains a cause of plausible concern.

However, we look forward to the results of other REIT stocks that are scheduled to release fourth-quarter 2013 results on Jan 28. These include Boston Properties Inc. (BXP - Analyst Report) and Jones Lang LaSalle Incorporated (JLL - Analyst Report). Both companies will report after the closing bell.

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